The opportunity to update cotton bases is a great benefit to Georgia growers, especially in comparison to growers in other parts of the U.S. Cotton Belt.
“We're going to see some acreage and base shifts here in Georgia,” says Don Shurley, University of Georgia Extension cotton economist. “If you're a cotton producer in Georgia, it's an opportunity to get your bases and payments much more in line with what you're actually growing.”
Under the 1996 farm bill, explains Shurley, Georgia cotton growers claimed a cotton base of 964,000 acres, while the actual acreage in the state has ranged from 1.3 million to 1.5 million since 1996. Georgia has a wheat base - under the old farm bill - of 800,000 acres. However, Georgia farmers don't produce half of that amount.
In addition, growers claimed a corn base under the old farm legislation of 900,000 acres. This past year, only 340,000 acres of corn were planted in Georgia.
“Growers in North Carolina find themselves pretty much in the same situation, while cotton acreage in the Mid-South and Texas actually has decreased. Base updating isn't as big a deal for these other growers as it is for us in Georgia. It'll be a great benefit,” says the economist.
The new farm bill, says Shurley, offers both opportunities and challenges for cotton producers. “Under the old legislation, all we had was AMTA payments. Under the new cotton program, we'll have a direct payment and a counter-cyclical payment kicking in,” he says.
For the past three or four years, Congress has had to step in and issue double AMTA payments, or issue AMTA payments again as part of a financial assistance package for cotton growers, he says.
“So Congress went ahead and put counter-cyclical payments in this new program — something that would kick in automatically whenever prices are low — so they don't have to come back each year with additional legislation.”
Growers will receive the direct payment, he adds, regardless of market conditions. The direct payment is set at 6.67 cents per pound.
If a grower doesn't have oilseeds, or if he hasn't planted an oilseed crop such as soybeans or canola in the past four years, then he has only two options — either he'll update his bases or he'll keep them as they are, says Shurley.
“If you don't have an oilseed history, you'll go with option one or four. Options two, three and five don't apply to you. If you have an oilseed history and you want to add them, you can look at options two, three and five.
“The difference in those options is in how much oilseed base you have. It's not a matter of adding or not adding. If you add over a certain limit, you'll have to reduce your other bases.”
The counter-cyclical payment, notes Shurley, will be based on the grower's election of one of three options. “Let's suppose that you have a current yield of 600 pounds per acre. In the past four years, you've averaged 700 pounds per acre.
“With the three options, you can retain your current yield, which is 600. Or, you can add to your current yield 70 percent of the difference between the current yield and the four-year average, which will give you 670. Or, you can go with 93.5 percent of your yield during the past four years. If you update your bases, you can select one of these three options to get your counter-cyclical payments.”
If a grower chooses not to update his bases, the counter-cyclical payment will be made at the current yield level, he adds.
“Whatever option you elect for one crop must be the same for all crops. You can't select one option for corn and another option for cotton. You have to look across your entire farm — all yields and acreages — and calculate the best option for the whole farm.”
Even with loan deficiency payments, it has been difficult, says Shurley, for cotton producers to make a profit or break even with the prices and yields of recent years. “Because direct payments and counter-cyclical payments are tied to base or historical production, these payments will be received regardless of acres planted and actual yield. Producers must base their planting decisions on expected market prices and total receipts, including LDP's or marketing from the loan.”
Budget planning, he says, can assist growers in making planting decisions this spring. “Because direct payments and counter-cyclical payments are not dependent on planting and production, acres planted must produce yields that will cover at least operating expenses, including land rent.
“If yields are less than this amount, it may be better to switch production to another crop or idle the land. One problem with taking land out of production, however, is the risk of little or no counter-cyclical payment. It land is in production, a lower counter-cyclical payment is offset by a higher price for the crop.”
The relationship between prices and payments is an important consideration in determining what to plant, how much to plant, and strategies for marketing the crop, says Shurley.
“Even with the increased safety net offered by the 2002 farm bill, yield, quality and marketing remain the keys to profitability.”